The challenge after the BoJ intervenes in the JPY
|When the BoJ met in September speculation had been increasing regarding BoJ intervention. The weakness in the JPY had been impacting Japan’s import market pushing up consumer prices and higher energy prices earlier in the year had been making it worse. So, when the BOJ met it was perhaps surprising that it did not even particularly try to weaken the JPY. However, it did that the following morning.
The decision
The BoJ kept interest rates unchanged and it maintained the yield curve control. It repeated the need to keep the powerful easing policy in place. The pandemic relief program was extended between 3-6 months depending on how the loans were made. However, there was no indication that FX intervention was imminent.
The intervention
The rate statement was quickly eclipsed by the FX moves in the JPY. Those moves were affirmed by Japan’s Vice Minister for Financial affairs saying the Gov’t took decisive action in FX markets. You can see the impact of the BoJ’s intervention below in the USDJPY.
The problem
The difficulty here for the BoJ is that fighting market dynamics will be hard/impossible. The banks in recent history that have tried to intervene in their currency successfully against market forces have failed. Think of the SNB as a prime example when the EURCHF peg collapsed in 2015. So, if US10-year yields keep moving higher then the USDJPY pair can keep moving higher too. So, expect the market to test the BoJ’s resolve. On Friday the US Core CPI print will be released. If the print comes in below market expectations then the BoJ can breathe a sigh of relief as that should take the USDJPY pair lower in line with US 10-year yields. However, should the print come in higher then expect yields to rise and the USDJPY too. That will throw the ball back into the BoJ’s court and traders should watch for any further signs of intervention.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.